Explanation Bond investment: Bond investments are debt securities which pay a fixed interest revenue to the investor. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: ■ Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. ■ Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. (a) Prepare journal entry for purchase of $120,000 6% bonds of County S at face value with an accrued interest for 40 days. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) 2016 May 11 Investments–County S Bonds 120,000 Interest Receivable 800 Cash 120,800 (To record purchase of bonds for cash) Table (1) ■ Investments–County S Bonds is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited. ■ Interest Receivable is an asset account. Since interest to be received has increased, asset value increased, and an increase in asset is debited. ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited. Working Notes: Compute amount of interest accrued for 40 days. Interest accrued = { Amount of debt investment × Rate of interest × Time period } = $120,000×6% × 40 days 360 days = $800 (b) Prepare journal entry to record the interest revenue received. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) 2016 October 1 Cash 3,600 Interest Receivable 800 Interest Revenue 2,800 (To record receipt of interest revenue) Table (2) ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited. ■ Interest Receivable is an asset account. Since interest accrued on May 11 is received, asset value decreased, and a decrease in asset is credited. ■ Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited. Working Notes: Compute amount of interest received from County S bonds. Interest received = { Amount of debt investment × Rate of interest × Time period } = $120,000×6% × 6 12 = $3,600 (c) Prepare journal entry for $30,000 bonds sold at 99%, with an accrued interest of $150 and a brokerage of $100

14th Edition

ISBN: 9781305088436

Author: Carl Warren, Jim Reeve, Jonathan Duchac

Publisher: Cengage Learning

See similar textbooks

Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that ba…

Question

Chapter 15, Problem 3E

To determine

Journalize the bond investment transactions in the books of Corporation B.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 15, Problem 2E

Chapter 15, Problem 4E

Students have asked these similar questions

NO AI unhelpful

Can you solve this general accounting problem using appropriate accounting principles?

General accounting question

Chapter 15 Solutions

Financial Accounting

Ch. 15.MJ - Prob. 1DQ Ch. 15.MJ - What is the difference between classifying an...Ch. 15.MJ - If a functional expense classification is used for...Ch. 15.MJ - Prob. 4DQ Ch. 15.MJ - What are two main differences in inventory...Ch. 15.MJ - Prob. 6DQ Ch. 15.MJ - Prob. 7DQ Ch. 15.MJ - Prob. 8DQ Ch. 15.MJ - Prob. 9DQ Ch. 15.MJ - How is treasury stock reported under IFRS? How...

Ch. 15.MJ - IFRS Activity 1 Unilever Group is a global company...Ch. 15.MJ - IFRS Activity 2 The following is a recent...Ch. 15.MJ - Prob. 3IFRS Ch. 15 - Why might a business invest cash in temporary...Ch. 15 - What causes a gain or loss on the sale of a bond...Ch. 15 - When is the equity method the appropriate...Ch. 15 - Prob. 4DQ Ch. 15 - Prob. 5DQ Ch. 15 - Prob. 6DQ Ch. 15 - Prob. 7DQ Ch. 15 - Prob. 8DQ Ch. 15 - Prob. 9DQ Ch. 15 - Prob. 10DQ Ch. 15 - Prob. 1PEA Ch. 15 - Prob. 1PEB Ch. 15 - On February 10, 15,000 shares of Sting Company are...Ch. 15 - Prob. 2PEB Ch. 15 - Prob. 3PEA Ch. 15 - Prob. 3PEB Ch. 15 - Prob. 4PEA Ch. 15 - Prob. 4PEB Ch. 15 - Prob. 5PEA Ch. 15 - On January 1, 2016, Valuation Allowance for...Ch. 15 - Prob. 6PEA Ch. 15 - Prob. 6PEB Ch. 15 - Parilo Company acquired 170,000 of Makofske Co.,...Ch. 15 - Prob. 2E Ch. 15 - Prob. 3E Ch. 15 - Prob. 4E Ch. 15 - Prob. 5E Ch. 15 - On March 4, Breen Corporation acquired 7,500...Ch. 15 - Prob. 7E Ch. 15 - Prob. 8E Ch. 15 - Seamus Industries Inc. buys and sells investments...Ch. 15 - Prob. 10E Ch. 15 - Prob. 11E Ch. 15 - Prob. 12E Ch. 15 - Prob. 13E Ch. 15 - JED Capital Inc. makes investments in trading...Ch. 15 - Prob. 15E Ch. 15 - Prob. 16E Ch. 15 - Prob. 17E Ch. 15 - Prob. 18E Ch. 15 - Prob. 19E Ch. 15 - The investments of Steelers Inc. include a single...Ch. 15 - Prob. 21E Ch. 15 - Storm, Inc. purchased the following...Ch. 15 - Prob. 23E Ch. 15 - Prob. 24E Ch. 15 - Prob. 25E Ch. 15 - Prob. 26E Ch. 15 - Prob. 27E Ch. 15 - Prob. 28E Ch. 15 - Prob. 29E Ch. 15 - Prob. 1PA Ch. 15 - Prob. 2PA Ch. 15 - Prob. 3PA Ch. 15 - OBrien Industries Inc. is a book publisher. The...Ch. 15 - Prob. 1PB Ch. 15 - Prob. 2PB Ch. 15 - Prob. 3PB Ch. 15 - Prob. 4PB Ch. 15 - Selected transactions completed by Equinox...Ch. 15 - On July 16, 1998, Wyatt Corp. purchased 40 acres...Ch. 15 - International Financial Reporting Standard No. 16...Ch. 15 - Prob. 3CP Ch. 15 - Berkshire Hathaway, the investment holding company...Ch. 15 - Prob. 5CP

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Journalize the bond investment transactions in the books of Corporation B.

Solution Summary: The author explains that journal entry is a set of economic events which can be measured in monetary terms.

Concept explainers

Journalize the bond investment transactions in the books of Corporation B.

Want to see the full answer?

Chapter 15 Solutions